Govt to request proposals for LIC IPO
The bankers will also be responsible for preparing the share sale documents
The government will soon ask investment bankers to submit proposals for managing the initial public offering of Life Insurance Corp. of India, which is poised to become the biggest share sale by an Indian company.
“We will issue it by the end of the month or early next month,” a senior government official said on condition of anonymity.
The official said government may appoint multiple merchant bankers, both domestic and international, with requisite experience in public offerings, who together will form a team and would be called BRLMs. The bankers will also be responsible for undertaking due diligence activities and prepare the IPO documents They will also be responsible for undertaking due diligence activities and prepare red herring prospectus for the IPO and complete regulatory formalities with Securities and Exchange Board of India (Sebi) and IRDAI, stock exchanges and Registrar or Companies.
The merchant bankers are also expected to ensure best return from the IPO to the government by conducting pre-market survey, road shows to generate interest among prospective investors. They will also be underwriting the IPO and allocate shares and provide after sale support.
Listing of LIC targeted for post-Diwali is crucial for the government to achieve its mammoth ₹1.75 lakh crore disinvestment target for FY22. While the second wave of the pandemic has delayed the disinvestment process, government has managed to issue two offer for sale (OFS) by selling 1.95% stake in Axis Bank held through SUUTI and 7.49% stake in NMDC Ltd.
Most analysts believe the LIC listing to be the largest by the government. However, in an interview with Mint in March,
Dipam secretary Tuhin Kumar Pandey had admitted the issue will be a large one but ruled out it to be ₹1 lakh crore or above as expected by the market. “The size will depend on market appetite, how much can be marketed at one go. Normally, you have got maximum issue size of ₹6,000-7,000 crore. Suddenly to expect ₹1 lakh crore at one go may not be advisable. It can be done in a phased manner,” he said.
Dipam had appointed actuary firm Milliman Advisors LLP India in December last year as the actuary firm for calculating the embedded value of LIC. Pandey had also said that DIPAM proposes to reserve up to 10% in the retail segment of the IPO for policy holders. “We want the policy holders also to be our shareholders,” he added.
Dipam last month invited proposals to appoint legal and transaction advisers for the strategic disinvestment of IDBI Bank Ltd in which LIC has a majority 49.24% stake apart from government’s 45.48% stake. LIC expects the stake sale to unlock substantial value ahead of its IPO.
Government has in recent past cleared the regulatory hurdles by making necessary changes in Life Insurance Corporation Act, 1956 by amending the Finance Bill. Earlier this month, Department of Financial Services amended the necessary rules to allow LIC to have a chief executive officer and managing director instead of the chairman position.
A query sent to the finance ministry remained unanswered till the time of going to the press.
Companies that have a market capitalisation of more than ₹1 lakh crore at the time of listing can now sell just 5% of their shares, with the latest amendment in rules, a move that will be beneficial for the government during the proposed initial public offer of LIC.
Such entities will be required to increase its public shareholding to 10% in two years and raise the same to at least 25% within five years.
The Department of Economic Affairs under the finance ministry has amended the Securities Contracts (Regulation) Rules.
Yash Ashar, Partner & Head - Capital Markets at law firm Cyril Amarchand Mangaldas, said there were some concerns that diluting 10% in very large IPOs (Initial Public Offers) in the future maybe very challenging.
With this amendment, companies which at listing will have a market cap greater than ₹1 lakh crore will be able to restrict their offer size to 5% (as compared to 10%) and this will ensure more flexibility for them,” he said.